[The Trump administration is threatening to impose a 25% tariff on all imports from Canada and Mexico, which could have a significant impact on the US auto industry. The tariffs would add thousands of dollars to the cost of cars, making them less affordable for many buyers. Automakers have operated as a unified market for years, with vehicles and parts moving freely across the border. Tariffs could disrupt this market, leading to production slowdowns or shutdowns at US plants.
Car factories could start slowing down or shutting down in short order, as even cars assembled in the US have parts imported from Canada and Mexico. Automakers will do a cost calculation soon after the tariffs go into effect and may decide to slow or stop production at US plants rather than pay the tariffs on their Canadian and Mexican parts.
The impact will be felt quickly, as nearly half of the 10 million vehicles built at American auto plants are for foreign brands. Cars and parts aren’t just flowing over the borders into the US, but also leaving the US for Canada and Mexico. Mexican and Canadian authorities have threatened to slap retaliatory tariffs on American goods if the Trump administration goes ahead with its tariff threat.
The US shipped $13.8 billion worth of cars to Canada and $26.5 billion worth of parts in the first 11 months of 2024, and $4.2 billion worth of vehicles to Mexico and $33.7 billion worth of parts. Automakers have likely been stockpiling parts from Canada and Mexico to keep production going as long as possible.
Even if automakers have to pay some tariffs on parts in their American-built vehicles, the additional costs might not be crippling for some of the cheaper parts. However, the industry will not stomach tariffs for an extended period of time. Within 30 to 45 days, automakers may move onto Plan B and Plan C if the situation is not resolved.
If production is scaled back or shipments from Canadian or Mexican plants are put on hold, dealers will not be eager to sell their current supply of vehicles at current market prices, anticipating that a shortage could drive up prices in the weeks and months to come. The average days’ supply of vehicles now available at US dealerships range from 25 days for Toyota to 73 days for Ford.
It will be important for the dealers and automakers to have this issue resolved by March or April, when tax refunds start to arrive and makes the spring a key sales period for automakers. Once the tariffs are in place, it will be the car buyers who will be paying the thousands of dollars more for each vehicle, not the automakers, dealers, or Mexico or Canada.
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